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Testimony: 

Before the Special Committee on Aging, U.S. Senate: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 2:30 p.m. EDT:
Wednesday, March 17, 2010: 

Medicare Part D: 

Spending, Beneficiary Out-of-Pocket Costs, and Efforts to Obtain Price 
Concessions for Certain High-Cost Drugs: 

Statement of John E. Dicken:
Director, Health Care: 

GAO-10-529T: 

GAO Highlights: 

Highlights of GAO-10-529T, a testimony before the Special Committee on 
Aging, U.S. Senate. 

Why GAO Did This Study: 

The Centers for Medicare & Medicaid Services (CMS) allows Part D plans 
to utilize different tiers with different levels of cost sharing as a 
way of managing drug utilization and spending. One such tier, the 
specialty tier, is designed for high-cost drugs whose prices exceed a 
certain threshold set by CMS. Beneficiaries who use these drugs 
typically face higher out-of-pocket costs than beneficiaries who use 
only lower-cost drugs. 

This testimony is based on GAO’s January 2010 report entitled Medicare 
Part D: Spending, Beneficiary Cost Sharing, and Cost-Containment 
Efforts for High-Cost Drugs Eligible for a Specialty Tier (GAO-10-242) 
in which GAO examined, among other things, (1) Part D spending on 
these drugs in 2007, the most recent year for which claims data were 
available; (2) how different cost-sharing structures could be expected 
to affect beneficiary out-of-pocket costs; (3) how negotiated drug 
prices could be expected to affect beneficiary out-of-pocket costs; 
and (4) information Part D plan sponsors reported on their ability to 
negotiate price concessions. For the second and third of these 
objectives, this testimony focuses on out-of-pocket costs for 
beneficiaries responsible for paying the full cost-sharing amounts 
required by their plans. GAO examined CMS data and interviewed 
officials from CMS and 8 of the 11 largest plan sponsors, based on 
enrollment in 2008. Seven of the 11 plan sponsors provided price 
concession data for a sample of 20 drugs for 2006 through 2008. 

What GAO Found: 

High-cost drugs eligible for a specialty tier commonly include 
immunosuppressant drugs, those used to treat cancer, and antiviral 
drugs. Specialty tier-eligible drugs accounted for 10 percent, or $5.6 
billion, of the $54.4 billion in total prescription drug spending 
under Medicare Part D plans in 2007. Medicare beneficiaries who 
received a low-income subsidy (LIS) accounted for most of the spending 
on specialty tier-eligible drugs—$4.0 billion, or 70 percent of the 
total. Among all beneficiaries who used at least one specialty tier-
eligible drug in 2007, 55 percent reached the catastrophic coverage 
threshold, after which Medicare pays at least 80 percent of all drug 
costs. In contrast, only 8 percent of all Part D beneficiaries who 
filed claims but did not use any specialty tier-eligible drugs reached 
this threshold in 2007. 

Most beneficiaries are responsible for paying the full cost-sharing 
amounts required by their plans. For such beneficiaries who use a 
given specialty tier-eligible drug, different cost-sharing structures 
result in varying out-of-pocket costs only until they reach the 
catastrophic coverage threshold, which 31 percent of these 
beneficiaries did in 2007. After that point, beneficiaries’ annual out-
of-pocket costs for a given drug are likely to be similar regardless 
of their plans’ cost-sharing structures. 

Variations in negotiated drug prices can also affect out-of-pocket 
costs for beneficiaries who are responsible for paying the full cost-
sharing amounts required by their plans. Variations in negotiated 
prices can occur between drugs, across plans for the same drug, and 
from year to year. For example, the average negotiated price for the 
cancer drug Gleevec across our sample of plans increased by 46 percent 
between 2006 and 2009, from about $31,200 per year to about $45,500 
per year. Correspondingly, the average out-of-pocket cost for a 
beneficiary taking Gleevec for the entire year could have been 
expected to rise from about $4,900 in 2006 to more than $6,300 in 2009. 

Plan sponsors reported having little leverage to negotiate price 
concessions from manufacturers for most specialty tier-eligible drugs. 
One reason for this limited leverage was that many of these drugs have 
few competitors on the market. Plan sponsors reported that they were 
more often able to negotiate price concessions for drugs with more 
competitors on the market—such as for drugs used to treat rheumatoid 
arthritis. Two additional reasons cited for limited negotiating 
leverage were CMS requirements that plans include all or most drugs 
from certain therapeutic classes on their formularies, limiting 
sponsors’ ability to exclude drugs from their formularies in favor of 
competing drugs; and that the relatively limited share of total 
prescription drug utilization among Part D beneficiaries for some 
specialty tier-eligible drugs was insufficient to entice manufacturers 
to offer price concessions. 

CMS provided GAO with comments on a draft of the January 2010 report. 
CMS agreed with portions of GAO’s findings and suggested additional 
information for GAO to include in the report, which GAO incorporated 
as appropriate. 

View [hyperlink, http://www.gao.gov/products/GAO-10-529T] or key 
components. For more information, contact John E. Dicken at (202) 512-
7114 or DickenJ@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss high-cost drugs covered under 
Medicare Part D and to provide highlights from our January 2010 report 
entitled Medicare Part D: Spending, Beneficiary Cost Sharing, and Cost-
Containment Efforts for High-Cost Drugs Eligible for a Specialty Tier. 
[Footnote 1] Medicare Part D is the outpatient prescription drug 
benefit offered by Medicare, the federal health insurance program 
which serves about 45 million elderly and disabled individuals. Some 
drugs covered by Part D have particularly high costs--sometimes 
exceeding tens of thousands of dollars per year--and beneficiaries who 
take these drugs often face high annual out-of-pocket costs. 

Under Part D, coverage and beneficiary cost sharing can vary. Medicare 
beneficiaries obtain Part D drug coverage by choosing from multiple 
competing plans offered by plan sponsors--often private insurers--that 
contract with the Centers for Medicare & Medicaid Services (CMS) in 
order to offer the prescription drug benefit. As of February 2010, CMS 
reported that 27.6 million beneficiaries were enrolled in Part D 
plans. Part D plan sponsors can offer a range of plans with either a 
defined standard benefit or an actuarially equivalent alternative, or 
plans with enhanced benefits. Plans can vary in the coverage provided, 
monthly premiums, and cost-sharing structure such as copayments and 
coinsurance.[Footnote 2] Most Part D beneficiaries--approximately 18 
million--are responsible for paying the full premium and cost-sharing 
amounts required by their plans. Part D provides premium and cost- 
sharing assistance through its low-income subsidy (LIS) for other 
beneficiaries who meet certain income and asset requirements. 

Plan sponsors can assign covered drugs to distinct tiers, such as 
separate tiers for generic and brand-name drugs. These tiers often 
have increasing levels of cost sharing in order to encourage 
beneficiaries to utilize less costly drugs such as generics. CMS also 
allows Part D plans to establish a "specialty tier" for high-cost 
drugs when the total cost for a drug--as determined through 
negotiations between the plan and pharmacies--exceeds a certain 
threshold, set by CMS at $500 per month for 2007 and $600 per month 
for 2008 through 2010. Drugs eligible to be placed on specialty tiers 
are among the most expensive drugs on the market. They are used by a 
small proportion of beneficiaries and commonly include 
immunosuppressant drugs, those used to treat cancer, and antiviral 
drugs. Plan sponsors may be able to manage spending on these high-cost 
drugs by negotiating price concessions with manufacturers or price 
discounts with pharmacies.[Footnote 3] 

My statement today is based upon our January 2010 report, in which we 
examined, among other things, (1) spending under Medicare Part D on 
specialty tier-eligible drugs covered in 2007, the most recent year 
for which claims data were available when we conducted our study; (2) 
how the different cost-sharing structures used by Part D plans for 
specialty tier-eligible drugs could be expected to affect beneficiary 
out-of-pocket costs; (3) how prices negotiated with pharmacies for 
specialty tier-eligible drugs could be expected to affect beneficiary 
out-of-pocket costs; and (4) the ability of Part D plans to negotiate 
price concessions from manufacturers for specialty tier-eligible 
drugs. For the second and third of these objectives, my statement 
today focuses primarily on out-of-pocket costs for most beneficiaries--
those who are responsible for paying the full cost-sharing amounts 
required by their plans. Details on out-of-pocket costs for LIS 
beneficiaries, which are subsidized by Medicare, can be found in our 
January 2010 report. 

To do the work for our report, we examined CMS's Prescription Drug 
Event (PDE) claims data from 2007 for Medicare Advantage prescription 
drug (MA-PD) plans and stand-alone prescription drug plans (PDP) to 
determine spending on drugs eligible to be placed on a Part D plan's 
specialty tier. For our purposes, we considered specialty tier-
eligible drugs to be all drugs with claims reimbursed under Part D 
with a median negotiated cost of at least $500 for a 30-day supply 
(i.e., where at least half of the claims for these drugs in 2007 met 
or exceeded the CMS cost threshold of $500 per month). We analyzed the 
effect of typical cost-sharing structures on beneficiary out-of-pocket 
costs. We also chose a judgmental sample of 20 specialty tier-eligible 
drugs and a sample of 36 high-enrollment MA-PD and PDP plans from six 
counties based on enrollment as of March 2008. We used CMS negotiated 
price data[Footnote 4] and CMS estimates of beneficiary out-of-pocket 
costs for our sample of drugs in 35 of the 36 selected plans[Footnote 
5] to analyze how negotiated drug prices could be expected to affect 
beneficiary out-of-pocket costs from 2006 through 2009. The results of 
this analysis cannot be generalized beyond our judgmental sample of 
drugs and selected plans. We conducted interviews with representatives 
from 8 of the 11 largest MA-PD and PDP plan sponsors based on 2008 
enrollment data from CMS. In addition, 7 of the plan sponsors we 
interviewed provided price concession data for our sample of 20 
specialty tier-eligible drugs for 2006 through 2008. These 7 plan 
sponsors represented 51 percent of all MA-PD enrollment and 67 percent 
of all PDP enrollment in 2008. We determined that the data we used for 
our report were sufficiently reliable for our purposes. We conducted 
the work for our report from March 2009 through December 2009 in 
accordance with all sections of GAO's quality assurance framework that 
are relevant to our objectives. The framework requires that we plan 
and perform the engagement to obtain sufficient and appropriate 
evidence to meet our stated objectives and to discuss any limitations 
in our work. We believe that the information and data obtained, and 
the analysis conducted, provide a reasonable basis for any findings 
and conclusions in this product. A detailed explanation of our 
methodology is included in our January 2010 report. 

Background: 

Under the defined standard benefit in 2009, beneficiaries subject to 
full cost-sharing amounts paid out-of-pocket costs during the initial 
coverage period that included a deductible equal to the first $295 in 
drug costs, followed by 25 percent coinsurance for all drugs until 
total drug costs reached $2,700, with beneficiary out-of-pocket costs 
accounting for $896.25 of that total. (See fig. 1.) This initial 
coverage period is followed by a coverage gap--the so-called doughnut 
hole--in which these beneficiaries paid 100 percent of their drug 
costs. In 2009, the coverage gap lasted until total drug costs-- 
including the costs accrued during the initial coverage period--
reached $6,153.75, with beneficiary out-of-pocket drug costs 
accounting for $4,350 of that total. This point is referred to as the 
catastrophic coverage threshold.[Footnote 6] After reaching the 
catastrophic coverage threshold, beneficiaries taking a specialty tier-
eligible drug paid 5 percent of total drug costs for each prescription 
for the remainder of the year.[Footnote 7] 

Figure 1: Medicare Part D Cost-Sharing Structure for Specialty Tier- 
Eligible Drugs under the Defined Standard Benefit, 2009: 

[Refer to PDF for image: illustration] 

Initial coverage period: 
Beneficiary paid $295 deductible; 
Plan paid 75 percent of drug costs; 
Beneficiary paid 25 percent of drug costs; 
$2,700 in total drug costs (Beneficiary paid $896.25 out of pocket). 

Coverage gap: 
Beneficiary paid 100 percent of drug costs; 
$6,153.75 in total drug costs (Beneficiary paid $4,350 out of pocket). 

Catastrophic coverage period: 
Medicare paid 80 percent of drug costs; 
Plan paid 15 percent of drug costs; 
Beneficiary paid 5 percent of drug costs[A]. 

Source: GAO analysis of CMS data. 

Note: LIS beneficiaries paid lower amounts in all phases of the 
benefit, while Medicare paid the remainder of beneficiaries' out-of- 
pocket costs. 

[A] Because of the high cost of specialty tier-eligible drugs, the 
beneficiary always paid 5 percent of drug costs during the 
catastrophic coverage period. 

[End of figure] 

In addition to cost sharing for prescription drugs, many Part D plans 
also charge a monthly premium. In 2009, premiums across all Part D 
plans averaged about $31 per month, an increase of 24 percent from 
2008.[Footnote 8] Beneficiaries are responsible for paying these 
premiums except in the case of LIS beneficiaries, whose premiums are 
subsidized by Medicare. 

In 2007, Specialty Tier-Eligible Drugs Accounted for 10 Percent of 
Part D Spending: 

We found that specialty tier-eligible drugs accounted for about 10 
percent, or $5.6 billion, of the $54.4 billion in total prescription 
drug spending under Part D MA-PD and PDP plans in 2007.[Footnote 9] 
Prescriptions for LIS beneficiaries accounted for about 70 percent, or 
about $4.0 billion, of the $5.6 billion spent on specialty tier- 
eligible drugs under MA-PD and PDP plans that year. (See figure 2.) 
The fact that spending on specialty tier-eligible drugs in 2007 was 
largely accounted for by LIS beneficiaries is noteworthy because their 
cost sharing is largely paid by Medicare. 

Figure 2: Spending on Specialty Tier-Eligible Drugs under Part D MA-PD 
and PDP Plans, 2007: 

[Refer to PDF for image: illustration] 

Specialty tier-eligible drugs: 
$5.6 billion in spending (10% of total Part D drug spending). 

LIS beneficiaries: 
$4.0 billion in spending (70% of specialty tier-eligible spending): 
Paid by Medicare: $3.11 billion (79%); 
Paid by Plans: $0.84 billion (21%); 
Paid by Beneficiaries: $0.01 billion (0.2%). 

Non-LIS beneficiaries: 
$1.7 billion[A] in spending (30% of specialty tier-eligible spending): 
Paid by Medicare: $0.70 billion (42%); 
Paid by Plans: $0.63 billion (38%); 
Paid by Beneficiaries: $0.33 billion (20%). 

Source: GAO analysis of CMS data. 

[A] Totals do not add to $5.6 billion due to rounding. 

[End of figure] 

While only 8 percent of Part D beneficiaries in MA-PD and PDP plans 
who filed claims but did not use any specialty tier-eligible drugs 
reached the catastrophic coverage threshold of the Part D benefit in 
2007, 55 percent of beneficiaries who used at least one specialty tier-
eligible drug reached the threshold. Specifically, among those 
beneficiaries who used at least one specialty tier-eligible drug in 
2007, 31 percent of beneficiaries responsible for paying the full cost 
sharing required by their plans and 67 percent of beneficiaries whose 
costs were subsidized by Medicare through the LIS reached the 
catastrophic coverage threshold. Most (62 percent) of the $5.6 billion 
in total Part D spending on specialty tier-eligible drugs under MA-PD 
and PDP plans occurred after beneficiaries reached the catastrophic 
coverage phase of the Part D benefit. 

Differences in Plans' Cost-Sharing Structures Result in Out-of-Pocket 
Costs for Most Beneficiaries That Vary Initially and Then Become 
Similar: 

For most beneficiaries--those who are responsible for paying the full 
cost-sharing amounts required by their plans--who use a given 
specialty tier-eligible drug, different cost-sharing structures can be 
expected to result in varying out-of-pocket costs during the benefit's 
initial coverage period.[Footnote 10] However, as long as 
beneficiaries reach the catastrophic coverage threshold in a calendar 
year--as 31 percent of beneficiaries who used at least one specialty 
tier-eligible drug and who were responsible for the full cost-sharing 
amounts did in 2007--their annual out-of-pocket costs for that drug 
are likely to be similar regardless of their plans' cost-sharing 
structures. 

During the initial coverage period, the estimated out-of-pocket costs 
for these beneficiaries for a given specialty tier-eligible drug are 
likely to vary, because some Part D plans may place the drug on a tier 
with coinsurance while other plans may require a flat copayment for 
the drug. For example, estimated 2009 out-of-pocket costs during the 
initial coverage period, excluding any deductibles, for a drug with a 
monthly negotiated price of $1,100 would range from $25 per month for 
a plan with a flat $25 monthly copayment to $363 per month for a plan 
with a 33 percent coinsurance rate.[Footnote 11] 

However, even if beneficiaries pay different out-of-pocket costs 
during the initial coverage period, their out-of-pocket costs become 
similar due to the coverage gap and the fixed catastrophic coverage 
threshold ($4,350 in out-of-pocket costs in 2009). (See fig. 3.) There 
are several reasons for this. First, beneficiaries taking equally 
priced drugs will reach the coverage gap at the same time--even with 
different cost-sharing structures--because entry into the coverage gap 
is based on total drug costs paid by the beneficiary and the plan, 
rather than on out-of-pocket costs paid by the beneficiary. Since 
specialty tier-eligible drugs have high total drug costs, 
beneficiaries will typically reach the coverage gap within 3 months in 
the same calendar year. Second, during the coverage gap, beneficiaries 
typically pay 100 percent of their total drug costs until they reach 
the catastrophic coverage threshold. This threshold ($4,350 in out-of-
pocket costs) includes costs paid by the beneficiary during the 
initial coverage period. Therefore, beneficiaries who paid higher out-
of-pocket costs in the initial coverage period had less to pay in the 
coverage gap before they reached the threshold. Conversely, 
beneficiaries who paid lower out-of-pocket costs in the initial 
coverage period had more to pay in the coverage gap before they 
reached the same threshold of $4,350 in out-of-pocket costs. Third, 
after reaching the threshold, beneficiaries' out-of-pocket costs 
become similar because they typically pay 5 percent of the drug's 
negotiated price for the remainder of the calendar year.[Footnote 12] 

Figure 3: Cumulative Beneficiary Out-of-Pocket Costs under Different 
Cost-Sharing Structures for a Drug with a Negotiated Price of $1,100 
per Month, for Beneficiaries Responsible for Full Cost-Sharing Amounts: 

[Refer to PDF for image: multiple line graph] 

Catastrophic coverage threshold ($4,350 out of pocket). 

Number of months the beneficiary filled a prescription for the drug in 
2009: 1; 
$50 copayment: $345; 
25 percent coinsurance: $496; 
33 percent coinsurance: $561. 

Number of months the beneficiary filled a prescription for the drug in 
2009: 2; 
$50 copayment: $395; 
25 percent coinsurance: $771; 
33 percent coinsurance: $924. 

Number of months the beneficiary filled a prescription for the drug in 
2009: 3; 
$50 copayment: $1,045; 
25 percent coinsurance: $1,496; 
33 percent coinsurance: $1,689. 

Number of months the beneficiary filled a prescription for the drug in 
2009: 4; 
$50 copayment: $2,145; 
25 percent coinsurance: $2,596; 
33 percent coinsurance: $2,789. 

Number of months the beneficiary filled a prescription for the drug in 
2009: 5; 
$50 copayment: $3,245; 
25 percent coinsurance: $3,696; 
33 percent coinsurance: $3,889. 

Out-of-pocket costs become similar once beneficiaries reach the 
catastrophic coverage threshold. 

Number of months the beneficiary filled a prescription for the drug in 
2009: 6; 
$50 copayment: $4,345; 
25 percent coinsurance: $4,372; 
33 percent coinsurance: $4,382. 

Number of months the beneficiary filled a prescription for the drug in 
2009: 7; 
$50 copayment: $4,405; 
25 percent coinsurance: $4,427; 
33 percent coinsurance: $4,437. 

Number of months the beneficiary filled a prescription for the drug in 
2009: 8; 
$50 copayment: $4,460; 
25 percent coinsurance: $4,482; 
33 percent coinsurance: $4,492. 

Number of months the beneficiary filled a prescription for the drug in 
2009: 9; 
$50 copayment: $4,515; 
25 percent coinsurance: $4,537; 
33 percent coinsurance: $4,547. 

Number of months the beneficiary filled a prescription for the drug in 
2009: 10; 
$50 copayment: $4,570; 
25 percent coinsurance: $4,592; 
33 percent coinsurance: $4,602. 

Number of months the beneficiary filled a prescription for the drug in 
2009: 11; 
$50 copayment: $4,625; 
25 percent coinsurance: $4,647; 
33 percent coinsurance: $4,657. 

Number of months the beneficiary filled a prescription for the drug in 
2009: 12; 
$50 copayment: $4,680; 
25 percent coinsurance: $4,702; 
33 percent coinsurance: $4,712. 

Source: GAO. 

Note: All scenarios include a $295 annual deductible paid by the 
beneficiary, $2,700 initial coverage limit, and $4,350 catastrophic 
coverage threshold. 

[End of figure] 

Variations in Negotiated Drug Prices Affect Out-of-Pocket Costs for 
Most Beneficiaries: 

For most beneficiaries--those who are responsible for paying the full 
cost-sharing amounts required by their plans--variations in negotiated 
drug prices affect out-of-pocket costs during the initial coverage 
phase if their plans require them to pay coinsurance.[Footnote 13] All 
35 of our selected plans required beneficiaries to pay coinsurance in 
2009 for at least some of the 20 specialty tier-eligible drugs in our 
sample. Additionally, negotiated drug prices will affect these 
beneficiaries' out-of-pocket costs during the coverage gap and the 
catastrophic coverage phase because beneficiaries generally pay the 
entire negotiated price of a drug during the coverage gap and pay 5 
percent of a drug's negotiated price during the catastrophic coverage 
phase. As the following examples illustrate, there are variations in 
negotiated prices between drugs, across plans for the same drug, and 
from year to year. 

* Variations between drugs: In 2009--across our sample of 35 plans-- 
beneficiaries who took the cancer drug Gleevec for the entire year 
could have been expected to pay about $6,300 out of pocket because 
Gleevec had an average negotiated price of about $45,500 per year, 
while beneficiaries could have been expected to pay about $10,500 out 
of pocket over the entire year if they took the Gaucher disease drug 
Zavesca, which had an average negotiated price of about $130,000 per 
year.[Footnote 14] 

* Variations across plans: In 2009, the negotiated price for the human 
immunodeficiency virus (HIV) drug Truvada varied from about $10,900 to 
about $11,400 per year across different plans with a 33 percent 
coinsurance rate, resulting in out-of-pocket costs that could be 
expected to range from about $4,600 to $4,850 for beneficiaries taking 
the drug over the entire year. 

* Variations over time: Since 2006, average negotiated prices for the 
specialty tier-eligible drugs in our sample have risen across our 
sample of plans; the increases averaged 36 percent over the 3-year 
period.[Footnote 15] These increases, in turn, led to higher estimated 
beneficiary out-of-pocket costs for these drugs in 2009 compared to 
2006. For example, the average negotiated price for a 1-year supply of 
Gleevec across our sample of plans increased by 46 percent, from about 
$31,200 in 2006 to about $45,500 in 2009. Correspondingly, the average 
out-of-pocket cost for a beneficiary taking Gleevec for an entire year 
could have been expected to rise from about $4,900 in 2006 to more 
than $6,300 in 2009. 

Plan Sponsors Report Three Main Reasons Why They Have a Limited 
Ability to Negotiate Price Concessions for Specialty Tier-Eligible 
Drugs: 

The eight Part D plan sponsors we interviewed told us that they have 
little leverage in negotiating price concessions for most specialty 
tier-eligible drugs. Additionally, all seven of the plan sponsors we 
surveyed reported that they were unable to obtain price concessions 
from manufacturers on 8 of the 20 specialty tier-eligible drugs in our 
sample between 2006 and 2008.[Footnote 16] For most of the remaining 
12 drugs in our sample, plan sponsors who were able to negotiate price 
concessions reported that they were only able to obtain price 
concessions that averaged 10 percent or less, when weighted by 
utilization, between 2006 and 2008. (See appendix I for an excerpt of 
the price concession data presented in our January 2010 report.) 

The plan sponsors we interviewed cited three main reasons why they 
have typically had a limited ability to negotiate price concessions 
for specialty tier-eligible drugs. First, they stated that 
pharmaceutical manufacturers have little incentive to offer price 
concessions when a given drug has few competitors on the market, as is 
the case for drugs used to treat cancer. For Gleevec and Tarceva, two 
drugs in our sample that are used to treat certain types of cancer, 
plan sponsors reported that they were not able to negotiate any price 
concessions between 2006 and 2008. In contrast, plan sponsors told us 
that they were more often able to negotiate price concessions for 
drugs in classes where there are more competing drugs on the market--
such as for drugs used to treat rheumatoid arthritis, multiple 
sclerosis, and anemia. The anemia drug Procrit was the only drug in 
our sample for which all of the plan sponsors we surveyed reported 
that they were able to obtain price concessions each year between 2006 
and 2008. 

Second, plan sponsors told us that even when there are competing 
drugs, CMS may require plans to include all or most drugs in a 
therapeutic class on their formularies, and such requirements limit 
the leverage a plan sponsor has when negotiating price concessions. 
When negotiating price concessions with pharmaceutical manufacturers, 
the ability to exclude a drug from a plan's formulary in favor of a 
therapeutic alternative is often a significant source of leverage 
available to a plan sponsor. However, many specialty tier-eligible 
drugs belong to one of the six classes of clinical concern for which 
CMS requires Part D plan sponsors to include all or substantially all 
drugs on their formularies, eliminating formulary exclusion as a 
source of negotiating leverage.[Footnote 17] We found that specialty 
tier-eligible drugs were more than twice as likely to be in one of the 
six classes of clinical concern compared with lower-cost drugs in 
2009.[Footnote 18] Additionally, among the 8 drugs in our sample of 20 
specialty tier-eligible drugs for which the plan sponsors we surveyed 
reported they were unable to obtain price concessions between 2006 and 
2008, 4 drugs were in one of the six classes of clinical concern. Plan 
sponsors are also required to include at least two therapeutic 
alternatives from each of the other therapeutic classes on their 
formularies. 

Third, plan sponsors told us that they have limited ability to 
negotiate price concessions for certain specialty tier-eligible drugs 
because they account for a relatively limited share of total 
prescription drug utilization among Part D beneficiaries. For some 
drugs in our sample, such as Zavesca, a drug used to treat a rare 
enzyme disorder called Gaucher disease, the plan sponsors we surveyed 
had very few beneficiary claims between 2006 and 2008. None of the 
plan sponsors we surveyed reported price concessions for this drug 
during this period. Plan sponsors told us that utilization volume is 
usually a source of leverage when negotiating price concessions with 
manufacturers for Part D drugs. For some specialty tier-eligible drugs 
like Zavesca, however, the total number of individuals using the drug 
may be so limited that plans are not able to enroll a significant 
enough share of the total users to entice the manufacturer to offer a 
price concession. 

Agency Comments and Our Evaluation: 

The Department of Health and Human Services (HHS) provided us with 
CMS's written comments on a draft version of our January 2010 report. 
CMS agreed with portions of our findings and suggested additional 
information for us to include in our report. We also provided excerpts 
of the draft report to the eight plan sponsors who were interviewed 
for this study and they provided technical comments. We incorporated 
comments from CMS and the plan sponsors as appropriate in our January 
2010 report. 

Mr. Chairman, this completes my prepared remarks. I would be happy to 
respond to any questions you or other Members of the Committee may 
have at this time. 

GAO Contact and Staff Acknowledgments: 

For further information about this statement, please contact John E. 
Dicken at (202) 512-7114 or DickenJ@gao.gov. 

Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this statement. Key 
contributors to this statement in addition to the contact listed above 
were Will Simerl, Assistant Director; Krister Friday; Karen Howard; 
Gay Hee Lee; and Alexis MacDonald. 

[End of section] 

Appendix I: Comparison of Price Concessions Negotiated by Seven Plan 
Sponsors for a Sample of 20 Drugs in 2008: 

Multiple sclerosis: 

Drugs (including strength and dosage form), by indication: Glatiramer 
acetate (Copaxone) 20 mg/ml injection; 
Number of plan sponsors that obtained price concessions: 7; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $1,867; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $1,732. 

Drugs (including strength and dosage form), by indication: Interferon 
beta-1a (Avonex) 30 mcg intramuscular injection; 
Number of plan sponsors that obtained price concessions: 5; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $1,935; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $1,884. 

Inflammatory conditions (e.g., rheumatoid arthritis, psoriasis, 
Crohn's disease)[A]: 

Drugs (including strength and dosage form), by indication: Adalimumab 
(Humira) 40 mg/0.8 ml injection; 
Number of plan sponsors that obtained price concessions: 7; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $1,600; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $1,469. 

Drugs (including strength and dosage form), by indication: Anakinra 
(Kineret) 100 mg injection; 
Number of plan sponsors that obtained price concessions: [B]; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $1,424; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $1,423. 

Drugs (including strength and dosage form), by indication: Etanercept 
(Enbrel) 50 mg/ml injection; 
Number of plan sponsors that obtained price concessions: 6; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $1,527; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $1,470. 

Human immunodeficiency virus (HIV): 

Drugs (including strength and dosage form), by indication: Atazanavir 
sulfate (Reyataz) 150 mg tablet; 
Number of plan sponsors that obtained price concessions: 6; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $853; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $810. 

Drugs (including strength and dosage form), by indication: 
Emtricitabine and tenofovir disoproxil fumarate (Truvada) 200 mg/300 
mg tablet; 
Number of plan sponsors that obtained price concessions: 0; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $881; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $881. 

Drugs (including strength and dosage form), by indication: Lamivudine 
and zidovudine (Combivir) 150 mg/300 mg tablet; 
Number of plan sponsors that obtained price concessions: 6; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $741; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $714. 

Drugs (including strength and dosage form), by indication: Lopinavir 
and ritonavir (Kaletra) 200 mg/50 mg tablet; 
Number of plan sponsors that obtained price concessions: 0; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $745; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $745. 

Cancer: 

Drugs (including strength and dosage form), by indication: Erlotinib 
(Tarceva)[C[ 150 mg tablet]; 
Number of plan sponsors that obtained price concessions: 0; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $3,393; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $3,393. 

Drugs (including strength and dosage form), by indication: Imatinib 
mesylate (Gleevec) 400 mg tablet; 
Number of plan sponsors that obtained price concessions: 0; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $3,389; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $3,389. 

Hepatitis C: 

Drugs (including strength and dosage form), by indication: Interferon 
alfa-2b (Intron-A) 3 million IU injection; 
Number of plan sponsors that obtained price concessions: 0; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $580; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $580. 

Drugs (including strength and dosage form), by indication: 
Peginterferon alfa 2a (Pegasys)[C] 180 mg/0.5 ml injection]; 
Number of plan sponsors that obtained price concessions: 6; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $1,817; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $1,561. 

Anemia: 

Drugs (including strength and dosage form), by indication: Darbepoetin 
alfa (Aranesp) 100 mcg/0.5 ml injection; 
Number of plan sponsors that obtained price concessions: 4; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $1,128; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $994. 

Drugs (including strength and dosage form), by indication: Epoetin 
alfa (Procrit) 40,000 units/ml injection; 
Number of plan sponsors that obtained price concessions: 7; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $1,593; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $1,420. 

Enzyme disorders (e.g., Gaucher disease): 

Drugs (including strength and dosage form), by indication: Miglustat 
(Zavesca) 100 mg capsule; 
Number of plan sponsors that obtained price concessions: 0; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $8,344; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $8,344. 

Pulmonary arterial hypertension: 

Drugs (including strength and dosage form), by indication: Ambrisentan 
(Letairis) 10 mg tablet; 
Number of plan sponsors that obtained price concessions: 0; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $4,416; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $4,416. 

Drugs (including strength and dosage form), by indication: Bosentan 
(Tracleer) 125 mg tablet; 
Number of plan sponsors that obtained price concessions: 0; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $4,423; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $4,423. 

Other (selected based on high utilization): 

Drugs (including strength and dosage form), by indication: 
Mycophenolate mofetil (CellCept)--immune suppressant 500 mg tablet; 
Number of plan sponsors that obtained price concessions: 7; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $681; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $652. 

Drugs (including strength and dosage form), by indication: 
Teriparatide (Forteo)[C]--osteoporosis 250 mcg/ml injection; 
Number of plan sponsors that obtained price concessions: 4; 
Average negotiated price per 30-day supply, before price concessions, 
weighted by utilization: $748; 
Average negotiated price per 30-day supply, after price concessions, 
weighted by utilization: $641. 

Source: GAO analysis of price concessions data provided by seven plan 
sponsors GAO surveyed. 

[A] These three distinct diseases (rheumatoid arthritis, psoriasis, 
and Crohn's disease) may be treated using some of the same drugs. We 
selected three of those drugs for our sample. 

[B] The total number of plan sponsors who reported receiving price 
concessions for this drug was too small to allow us to report this 
value while maintaining confidentiality. 

[C] One of the seven plan sponsors we surveyed did not submit any data 
for this drug. Therefore, values listed for this drug are based on 
data submitted by six plan sponsors, rather than seven plan sponsors. 

[End of table] 

[End of section] 

Footnotes: 

[1] GAO, Medicare Part D: Spending, Beneficiary Cost Sharing, and Cost-
Containment Efforts for High-Cost Drugs Eligible for a Specialty Tier, 
[hyperlink, http://www.gao.gov/products/GAO-10-242] (Washington, D.C.: 
Jan. 29, 2010). 

[2] A copayment is usually a fixed dollar amount paid by the 
beneficiary, while coinsurance is a percentage of the cost. 

[3] Sponsors must pass price concessions on to the program. See the 
Social Security Act §§ 1860 D-2(d)(1)(A), -15(b)(2), and -15(e)(1)(B) 
(as added by the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 [MMA]) (codified at 42 U.S.C. §§ 1395w-
102(d)(1)(A), -115(b)(2), and -115(e)(1)(B)). 

[4] Negotiated drug prices are prices negotiated between pharmacies 
and plan sponsors for drugs dispensed by a pharmacy to plan 
beneficiaries and are reported by plan sponsors to CMS. CMS negotiated 
price data, which reflect average prices reported by plans across 
pharmacies available to beneficiaries, can be used only to estimate 
average beneficiary out-of-pocket costs, and may not reflect actual 
out-of-pocket costs paid by beneficiaries. The latter are influenced 
by factors--such as the extent of price concessions negotiated between 
plans and pharmacies--that vary by pharmacy and region. 

[5] CMS was unable to provide negotiated drug price data and estimated 
out-of-pocket costs for all 4 years--2006 through 2009--for one plan 
in our sample. Therefore, we excluded this plan from our analyses. 

[6] In designing an actuarially equivalent alternative plan, plan 
sponsors must maintain the catastrophic coverage threshold set by CMS 
pursuant to law ($4,350 in 2009). See the Social Security Act §1860D- 
2(b)(4)(B) (as added by the MMA) (codified at 42 U.S.C. §1395w- 
102(b)(4)(B)). 

[7] For 2010, the standard benefit amounts set by CMS are as follows: 
a $310 deductible, a $2,830 initial coverage limit, and a catastrophic 
coverage threshold of $4,550. 

[8] "A Status Report on Part D for 2009," Report to the Congress: 
Medicare Payment Policy (Washington, D.C.: Medicare Payment Advisory 
Commission [MedPAC], March 2009), [hyperlink, 
http://www.medpac.gov/document_search.cfm] (accessed Aug. 13, 2009). 

[9] These amounts include spending by Medicare, the plans, and 
beneficiaries. 

[10] LIS beneficiaries' out-of-pocket costs for all drugs, including 
specialty tier-eligible drugs, are not significantly affected by 
different plans' cost-sharing structures because Medicare has 
established fixed cost-sharing levels for all LIS beneficiaries, 
regardless of the plans in which they are enrolled. 

[11] $1,100 per month was the utilization-weighted average of the 
median negotiated price of all specialty tier-eligible drugs in 2007 
based on PDE claims data. 

[12] While not common, some plan sponsors offer MA-PD plans with lower 
cost sharing than the usual 100 percent during the coverage gap or the 
usual 5 percent during the catastrophic coverage period. In these rare 
cases, beneficiaries would have lower out-of-pocket costs for 
specialty tier-eligible drugs over the course of the calendar year. 

[13] Out-of-pocket costs for LIS beneficiaries are generally not 
affected by variations in negotiated drug prices because most LIS 
beneficiaries pay a flat monthly copayment for all drugs regardless of 
the drug's price. 

[14] Values reported are averages in 2009 across the 35 selected plans 
used in our analysis. 

[15] We calculated average negotiated drug prices separately for 2006 
and 2009 across all plans that covered a given drug for each year and 
then compared the two average prices to determine the percent 
increase. CMS did not provide negotiated prices or estimated out-of-
pocket costs for four drugs in our sample--Aranesp, Intron-A, Kaletra, 
and Letairis--for 2006. Therefore, these drugs are excluded from this 
calculation. 

[16] One of the plan sponsors we interviewed declined to provide price 
concession data through our survey. 

[17] A therapeutic class or category of drugs is generally based on an 
indication approved by the Food and Drug Administration. Part D 
sponsor formularies must include all or substantially all drugs in the 
following six classes of clinical concern as identified by CMS: 
immunosuppressant (for prophylaxis of organ transplant rejection), 
antidepressant, antipsychotic, anticonvulsant, antiretroviral, and 
antineoplastic. Examples of other therapeutic classes include 
analgesics, blood glucose regulators, cardiovascular agents, 
dermatological agents, respiratory tract agents, and sedatives. 

[18] This analysis was conducted by comparing specialty tier-eligible 
and nonspecialty tier-eligible drugs at the drug (ingredient) level 
with a list of drugs in the six classes of clinical concern provided 
by CMS. 

[End of section] 

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